Repairs and maintenance — what is allowable
- Allowable repairs: painting and decorating, fixing guttering and roof tiles, repairing/replacing boiler (like-for-like), pest control, servicing gas and electrical systems, replacing broken windows, repointing brickwork, garden maintenance
- The 'entirety' principle: where an asset is so deteriorated it must be entirely replaced, the replacement can still be a repair even using modern materials (e.g., replacing cast-iron pipes with plastic)
- Kitchens and bathrooms: replacing a completely worn-out kitchen/bathroom with a modern equivalent (same layout, similar quality) can be a repair to the entirety — but upgrading quality or changing layout is capital
- Maintenance costs: annual gas safety checks, boiler servicing, EICR, and similar regular servicing costs are allowable revenue expenses
- Landlord's own labour: HMRC does not allow a deduction for the value of the landlord's own time — only cash expenditure on third-party contractors or materials is deductible
Repair vs improvement — keep evidence
HMRC can enquire into landlord returns up to 6 years after the tax year. Retain all contractor invoices, before-and-after photos, and surveyor reports to support claims that expenditure was a repair rather than an improvement.
Capital improvements — not allowable against income
- Capital expenditure: adding rooms/extensions, loft conversions, installing central heating where there was none, adding double glazing where none existed, rewiring to modern standards, landscaping to create new features
- Enhancement expenditure for CGT: capital expenditure still reflected in the property at the time of disposal is deductible against the capital gain under Section 38 TCGA 1992 — keep all records
- Mixed repair/improvement jobs: where a single job involves both repair and improvement elements, apportion the cost — base the repair element on the cost of a like-for-like replacement
- Initial repairs on distressed acquisitions: where a property is purchased below market value because of disrepair, HMRC may treat initial restoration costs as capital (the 'Odeon Theatres' principle)
Replacement Domestic Items Relief (RDIR)
- Replaces the old wear-and-tear allowance from 6 April 2016 — applies to all residential lets, not just furnished
- Covered items: furniture, kitchen appliances, carpets, curtains/blinds, crockery, cutlery, white goods
- Deduction limited to like-for-like cost: if upgrading (e.g., basic fridge to American-style fridge-freezer), only the cost of a like-for-like replacement is deductible
- Old item must no longer be in use in the property: it must be discarded or given away — not stored in the garage
- First purchase is capital: RDIR applies to replacement only — the initial purchase of domestic items when first furnishing the property is capital expenditure, not deductible under RDIR
VAT on renovation and repair works
- Standard 20% VAT on routine repairs: most repair and maintenance work on residential let property is subject to 20% VAT — residential landlords cannot recover this as lettings are exempt supplies
- 5% reduced rate — empty for 2+ years: renovation works on a dwelling vacant for at least 2 years attract the 5% reduced rate — evidenced by council tax records or utility bills
- 5% reduced rate — commercial-to-residential conversion: conversion of a commercial building to residential use also attracts the 5% reduced rate
- Zero-rated first sale: the first sale of a newly constructed or converted residential dwelling is zero-rated, allowing developers who sell units to recover input VAT
- Residential landlords cannot generally reclaim VAT: residential lettings are exempt supplies — VAT registration and reclaim only relevant where the landlord makes taxable supplies (commercial lets, holiday lets, or new-build sales)
Pre-letting expenditure and record-keeping
- General rule: expenses before the letting business starts are not deductible as revenue expenses — the business has not yet started
- Short-period exception: HMRC accepts expenditure incurred shortly before the first letting and clearly for the purpose of letting may be deductible
- Distressed property trap: purchasing at below-market price due to disrepair and then restoring — HMRC may treat initial restoration as capital, not repairs
- Record-keeping: HMRC can enquire up to 4 years (or 6 for careless behaviour, 20 for fraud) — retain all invoices, photos, surveyor reports, planning permissions, council tax records, and bank statements